BEHAVIOURAL ECONOMICS has been embraced enthusiastically by the left, because it challenges the model of the rational decision-maker. If people systematically make errors in their decisionmaking, then doesn't that open up a need for the government to step in and fix things?
I've never quite understood this argument, of course; where are we getting the human beings who make the decisions for the government? Do they come out of a different pool from the ones who flunk the basic rationality tests posed by the behavioural economics? In fact, as public choice theory shows, government has a whole set of special decision-making problems that can make the normal human mistakes of those decision-makers even worse.
In the March edition of Reason magazine, legal writer Walter Olson points out how frequently the government has been implicated in the problems we expect it to save us from.
As we read in The Winner's Curse in Bryan Caplan's class last year, there does seem to be evidence that people are not always rational decision makers. I deeply agree with this post that if this is true, it is all the more reason to be wary of putting power in the hands of people who are just likely (if not more so) to make non-rational decision as we are. As the post says, putting decisions into the political arena usually just makes these decisions even worse -- often leading to non-optimal outcomes no individual would chose over other alternatives.
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